Non-status Bridging Loans

2024 Non-status Bridging Loan Guide

Can you get a non-status bridging loan? Does bad credit affect your ability to get a bridging loan? Find out why it's still possible to get short-term bridge finance, how it could even help improve your credit rating in the future, and our quick guide to securing non-status finance.

What is non-status bridging?

A "Non-status Bridging Loan" is a form of short-term finance for borrowers whose credit rating is not factored into the lending decision. In bridging finance, the term "non-status" refers to individuals or businesses that do not meet the conventional lending criteria set by mainstream banks or financial institutions. The term "non-status" includes a range of a borrower's (company or individual) credit-related scenarios. For example, where the borrower has no credit history, light credit history or bad (adverse) credit history.

Bridging loans are a non-status short-term financial product, so they're commonly used by people or businesses with no credit history, light credit or bad credit. Unlike bridging loans, a non-status designation typically makes obtaining traditional finance products such as personal loans, mortgages, or business lines of credit difficult. In bridging loans, the lending decision is based on the collateral's market value, loan-to-ratio value, and existing borrowing. As such, a non-status designation doesn't affect the lending decision.

Who uses non-status bridging loans?

Non-status borrowers who use bridging loans are individuals or businesses, typically property investors, developers, or those with poor credit scores. These include:

• people who have a poor credit score
• people with a history of missed or late loan repayments
• people who have previously been declared bankrupt
• newly incorporated business with no credit history
• people who are a foreign national with no credit history in the UK
• people who are young and, as such, have a light credit history

Non-status bridging loans are designed to cater to the needs of individuals or businesses with non-status.

Are non-status bridging loans expensive?

Non-status bridging loans are not necessarily more expensive than "normal" bridging loans because they're the same product. Bridging loans are typically non-status. However, alternative non-status finance options, such as bridging loans, are more expensive than traditional financing (residential or commercial mortgages) as they are niche short-term products. To offset the risk of lending to an entity (person or business) with non-status, bridging loan lenders require more substantial security (typically land or real estate) and charge higher interest rates and fees.

What are the benefits of non-status bridging loans?

The main benefit of non-status bridging loans is that they are the quickest form of high-value, short-term non-status borrowing. Speed is typically the most important factor when borrowers choose bridging loans, followed by flexibility of lending criteria.

Bridging loans assists borrowers in buying property and cashing out equity for urgent short-term needs. New property or land purchases are quickly facilitated by bridging loans. Borrowers with an existing property sometimes cash out equity via a bridge loan to solve urgent personal or business needs such as raising cash flow (working capital). 

Can you get a bridging loan with bad credit?

Yes, even when borrowers have a bad credit history, they can still qualify for a bridging loan, providing the following conditions are met.

Firstly, they'll need to own a property, as most bridging loans are secured against this type of asset. Whilst the property could be located outside the UK, more lenders are willing to lend on UK property than overseas.

Secondly, that property must have enough available equity to achieve a loan-to-value (LTV) ratio that fits within the bridging loan lender's LTV limits.

Lastly, the borrower must have a realistic exit strategy. Unlike mortgages, there are typically no monthly repayments with a bridge loan; the full repayment is made at the end of the loan term in one lump sum. As such, the lender will expect the borrower to have a reliable method of repaying the debt when the loan ends to avoid default.

So yes, even where a borrower has already been turned down for a mortgage or credit card due to bad credit, this doesn't mean they won't be able to obtain a bridging loan.

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Will a bridging loan lender perform credit checks?

Bridging loan lenders will ask to see your credit report but will not usually perform a credit check. Your credit report's main objective is to inform lenders how you handle borrowing. 

The lender will typically focus on whether the property's available equity being used as security is adequate for underwriting the loan being sought. Because of this, many bridging loan lenders do not perform credit checks but instead ask for the borrower to supply their credit report, which is easily obtained from online credit companies. That doesn't mean the lender won't ask about a borrower's poor credit score, as the lender will want to understand what type of bad credit the borrower has and why it occurred.

The type of bad credit and the explanation of why it occurred are likely to influence the decision on whether the loan gets approved. So, if you're a borrower with bad credit seeking a bridging loan, make sure you have your credit report to hand and expect the lender to ask questions about the circumstances of your bad credit. Always be truthful and transparent, as lenders will not lend to someone they think is deceitful.

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What types of adverse credit will bridging lenders likely accept?

Lenders will still consider a bridging loan for a borrower who has the following previous credit problems:

• County court judgements (CCJs)
• Defaulting on loans
• Debt management plan (DMP)
• Debt relief order (DRO)
• Individual voluntary arrangements (IVA)
• Payday loan use
• Payments arrears
• Previous bankruptcy
• Property repossession

Whilst the adverse credit problems listed are not grounds for immediate disqualification, the borrower will still need to meet the lender's other criteria, such as having a robust exit strategy to repay the loan and adequate security.

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Are bridging loans easier to get than mortgages with bad credit?

Yes, bridging loans are easier to get than a mortgage if you have bad credit. Obtaining a mortgage whilst having bad credit is a challenge and certainly more difficult than getting a bridging loan. The main reasons are the regulations on those large lenders by the Financial Conduct Authority (FCA), the UK's regulatory body that oversees the mortgage market, the lenders' risk appetite and lenders' market niche.

Regulated mortgages are harder to get than unregulated bridging loans.

High street mortgage companies deal in volumes of homeowner mortgages. For example, in 2022, Lloyds Banking Group had a 16.8% UK mortgage lending market share with approximately 53 billion British pounds in gross lending. If a large mortgage lender such as Lloyds Banking Group were to fail due to loan defaults, the negative consequences for the economy and people who had mortgages would be significant. As such, strict lending criteria are placed upon mortgage lenders by the FCA to mitigate this risk and ensure financial stability in the markets. This regulation largely stops mainstream banks from being able to be flexible with their lending criteria, and where they offer bridging loans, it's strictly limited in size and scope. If borrowers had bad credit or non-status, they would unlikely meet a bank's lending criteria.

Mortgage lenders have a smaller risk appetite than bridging loan lenders.

A traditional mortgage is typically long-term, lasting 25-30 years. It's a long period in which Economic downturns, recessions, pandemics, Bank of England base rate rises, house price fluctuations, and job insecurity can affect homeowner mortgage holders. A bridge loan is short-term, typically 3-24 months, so the lender has a clearer forecast of the short-term challenges, if any, in the market that may affect the collateral upon which their loan is secured. This enables the lender to effectively factor in any potential reduction in the property value that has been put up as collateral by charging higher fees, higher interest rates or reducing the maximum loan-to-value (LTV). These mechanisms safeguard the lender's exposure to default. Where defaults occur, they can more easily recover their financial investment. The fact that loans will be repaid much more quickly incentivises lenders to agree to bridging loans for borrowers with less-than-perfect credit.

Bridging loan lenders are niche lending where mainstream banks won't.

Bridging loan lenders tend to specialise in niche markets because they know that market intimately. This knowledge allows them to understand the lending risks better. There may only be a handful of lenders whose criteria are appropriate to the borrower's requirements.

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What checks will the bridging finance lender carry out?

From a credit viewpoint, the lender will want to see your current credit report from several online credit companies. Other checks that must be completed will be an anti-money laundering (AML) check, a Know Your Client (KYC) check, an identity check, an assets and liabilities check, and a property survey to obtain a valuation report.

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How much can I borrow with adverse credit?

Bridging loan lenders typically offer up to 75% LTV on residential property (£75,000 per £100,000 of equity) and 65% LTV  (£65,000 per £100,000 of equity) on commercial or semi-commercial property. How much you can borrow will depend on how much available equity you have in the property asset used as collateral. Adverse credit doesn't directly affect the amount you can borrow.

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Can I get a bridging loan with no credit check?

No, you should expect your lender to ask to see your credit report when applying for a bridging loan.

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Do you need proof of income for a bridging loan?

No, proof of income is not required for all bridging loans. Unregulated bridging loans, where the collateral is an investment property and not a main residence, do not require proof of income. Regulated bridging loans, whose collateral is your home or a close family member, will require proof of income to comply with affordability checks.

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Could a bridging loan help my credit history?

Any loan default is bad for your credit score, so it's essential to avoid it if possible. On the other hand, having a serviced bridging loan and making your payments on time can improve your credit history profile.

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Types of bad credit that could categorise you as non-status

What is a County court judgment (CCJ), and what do I need to know?

A County Court Judgement (CCJ) is an official document issued by a county court and can be registered against an individual or business for any unpaid debts. It is a formal reminder that you owe money to the creditor, and if it remains unpaid, it will be recorded on your credit report. This, in turn, can negatively impact your credit score and make it more difficult for you to obtain further credit.

It's important to be aware of a CCJ and take steps to address any outstanding debts as soon as possible. If you receive notification of a CCJ, your creditor has taken legal action against you - they have gone to court, and a judge has ruled that you must pay the debt. It's highly recommended to start making payments on the outstanding debt immediately or contact your creditor to discuss options for repayment.

If you don't try to clear your CCJ debts, it will stay on your credit report for six years, which could significantly damage your credit score. Even if you pay off the debt or settle it with your creditor, the CCJ will remain on your record unless you apply to remove it – this is known as 'setting aside' a CCJ.

It can be daunting to receive a CCJ, particularly if you know what this means and how long it will stay on your file. However, don't panic - there are options and steps you can take to help resolve the situation. Ensure that you seek professional advice and keep up with all your payments.

Defaulting on loans

Loan defaults refer to when a borrower fails to make payments on their loan in the agreed-upon time and manner. In the UK, loan defaults are usually reported by credit reference agencies whenever this occurs.

When someone has defaulted on a loan, they will likely be unable to borrow from mainstream financial institutions and lenders, as the credit reference agencies will report them as a ‘risky borrower’. This can make it difficult for them to obtain further credit. Defaults stay on an individual's credit file for six years, so it's important to remember that any defaults made in the past will still be visible to lenders, even if the loan has been paid off since then. It's, therefore, important for borrowers to make sure they can meet their repayment commitments in the agreed-upon time and manner. This can help ensure that any defaults made do not remain on an individual’s credit file for too long, potentially hindering their ability to access future credit. It's also important for any borrower to remember that loan defaults can have serious consequences and should be avoided. Making sure you understand the terms and conditions of any loan agreement is essential to make sure you can meet your responsibilities and avoid any potential damage to your credit rating.

What is a Debt management plan (DMP)

A Debt Management Plan (DMP) is a method of debt restructuring offered to individuals or businesses in the UK who are struggling with their finances. A DMP works by consolidating all creditors into one plan, allowing you to make payments in one convenient place. It also helps reduce interest rates and create manageable payment plans that fit your budget.

DMPs can be set up with the help of a financial advisor or through a debt management company. Once the plan has been agreed upon, you will make one payment to the company each month, and they will distribute the payments among your creditors according to the terms of your agreement. The goal is to reduce monthly payments so that debt can be paid off over some time.

When setting up a DMP, it's important to ensure that all creditors agree and understand the terms of the agreement. A good debt management plan should also include a budgeting element so you can keep track of your finances to prevent further financial difficulties in the future.

What is a Debt Relief Order (DRO)

A Debt Relief Order (DRO) is a form of insolvency designed to help people with relatively low income and few assets who live in England, Wales or Northern Ireland. It's a bankruptcy alternative and can be beneficial if you do not have enough money to pay your debts. Once the DRO is approved, it will freeze your debts for a year and stop creditors from taking legal action against you during this period. At the end of the 12 months, your debts are written off permanently unless your circumstances change so you can pay them. To be eligible for a DRO, you must meet certain criteria:

1. Your debts must be under £20,000
2. You must have less than £1,000 in savings or assets
3. Your disposable income must be less than £50 a month
4. You must live in England, Wales or Northern Ireland
5. You cannot have been the subject of a DRO in the last six years
6. You must not have participated in any other formal insolvency procedure in the last six years.

You can apply for a DRO via an approved intermediary if you meet these criteria. They will help to assess your situation and advise whether or not a DRO is appropriate for your particular circumstances. Once the application is approved and the DRO is in place, you will no longer have to pay or contact creditors. At the end of the 12 months, all unsecured debts included in the DRO are legally written off by law, and creditors can no longer pursue any money owed. Not all types of debts are included in a DRO; these include child maintenance arrears, student loan debts, court fines and secured debt. It's also important to be aware that having a DRO on your credit reference file will affect your ability to get credit or loans from most lenders for six years after the date it's approved.

What are Individual Voluntary Arrangements (IVA)?

An Individual Voluntary Arrangement (IVA) is a legal agreement between individuals and their creditors to repay part or all of the debts owed over a fixed period. It provides a bankruptcy alternative and allows people in debt to develop a repayment plan that is both affordable and realistic for them. An IVA can consolidate various debt types, including credit card and loan debts.

When entering an IVA, the individual is protected from creditors and can no longer be pursued for payment. The agreed repayment plan will typically last five to seven years, during which interest and additional charges are frozen. After this period, any remaining debts are written off. To qualify for an IVA, the individual must meet certain criteria. This includes having unsecured debt of at least £5,000 and being able to afford a monthly repayment towards their debt. The IVA provider will fully assess the individual's financial situation before recommending an IVA. The individual must also be able to prove their income and expenditure for the last three months and agree to keep up repayments for the duration of the IVA.

In addition, any assets, such as property or vehicles, may have to be used as security. Once the IVA is in place, creditors are legally bound by it and must abide by the terms of the agreement. The IVA will be supervised by an Insolvency Practitioner, who is responsible for ensuring that creditors and debtors comply with the terms of the agreement. In most cases, payments are made to a single person or company (the 'Nominee'), who then distributes the payments amongst creditors.

Overall, an Individual Voluntary Arrangement can be a great solution for people struggling with debt. It's important to remember that it should only be used as a last resort and that seeking professional advice is essential before entering an IVA.

What is a Payday loan, and why could its use affect my credit?

A payday loan, also known as a cash advance, is a short-term loan that typically covers expenses until the borrower's next payday. The loans provide temporary financial assistance until the borrower has received their full wages and can pay off the debt. Payday loans are unsecured, meaning no collateral is required, and the lender relies on the borrower's promise to repay.

Payday loans have been a popular form of credit, especially among people with poor or bad credit scores who may not qualify for traditional bank loans. While they can provide instant access to cash in an emergency, they come with high interest rates and other costs and are a high-risk form of credit that should be used cautiously.

The costs associated with payday loans can quickly add up, resulting in borrowers being caught in a cycle of debt.

Borrowers should ensure they understand the terms and conditions of the loan before taking out a payday loan and always consider other options before committing to a payday loan. The interest rates associated with payday loans are extremely high, which can leave borrowers struggling to repay the loan and get out of debt. In addition, the repayment period for a payday loan is often very short and missing payments can result in additional fees or penalties. Taking out too many payday loans can damage a borrower's credit score, making it harder to access other forms of credit.

What does the term Payments arrears mean?

Payment arrears are when a person fails to make their scheduled payments on time, such as mortgage payments, credit card bills, loans or utilities. Payment arrears can seriously affect an individual’s financial health, resulting in late fees and additional penalties the lender imposes. Payment arrears can hurt an individual's credit rating, making it more difficult to obtain additional credit. It's also possible that missed payments may result in legal action being taken against the individual to recover any outstanding debts.

What is bankruptcy?

Bankruptcy is a legal status that can be assigned to individuals or companies who can no longer pay their creditors. It's essentially a way for people and organisations to obtain relief from debts that exceed their ability to repay. Filing for bankruptcy will stop any further action from the creditors, such as phone calls or letters requesting payment.

In the UK, there is a specific process for bankruptcy that must be followed. Individuals or companies may declare themselves bankrupt by applying with the court. However, in most cases, creditors will apply for bankruptcy on the debtor's behalf. The official receiver will then be appointed to manage the estate of an individual or company declared bankrupt. The official receiver will collect any available assets and negotiate with creditors to pay off as much debt as possible.

Once a bankruptcy order is granted, the individual or company will be subject to certain restrictions on their financial activities for some time. This could include being unable to get credit from banks or other lenders, being prohibited from acting as a company director and having to provide details of income and expenditure for the duration of their bankruptcy.

Bankruptcy can have serious implications for an individual or business regarding their financial standing, so anyone facing serious debt problems must consider all other options before beginning this process. Advice from experienced professionals should always be sought before making any decisions.

What is property repossession?

Property repossession is the legal process of a lender taking control and owning property, usually a home or possessions when the borrower fails to keep up with their financial commitments. It allows lenders to reclaim any outstanding debts on a loan secured against those assets.

Regarding mortgages in the UK, repossession is known as foreclosure and overseen by the courts. The lender will typically apply to a court of law for an order that allows them to repossess your property when you miss payments on your mortgage.

In England and Wales, the legislation governing repossession is found in Chapter V of the Law of Property Act 1925. This lays out how and when lenders may pursue repossession. Before applying for a court order, the lender must provide written notice to the borrower and allow them an opportunity to make their payments up to date.

After a court order is granted, the lender can't legally repossess your property without giving you at least 14 days of written warning before any enforcement action.

Under the Consumer Credit Act 1974, secured creditors are allowed to repossess goods you have purchased with a loan or other type of credit agreement if payments on that debt become overdue. In most cases, the lender must give notice of seven days before they can begin taking back the goods.

If your lender does take back your goods, they must either return them to you or sell them in a ‘commercially reasonable’ manner. The lender is then obliged to pay the proceeds of that sale towards any outstanding debt.

It's important to remember that if your possessions are repossessed, any shortfall between the total amount owed on the loan and the sale of your possessions will remain due. This means you may still owe money even after repossession, so it's important to keep up with your payments or seek extra help if you are struggling.

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Final thoughts about non-status bridging loans

Even with bad credit, securing a non-status bridging loan remains viable for short-term financing, opening doors to property investment, development, or overcoming financial hurdles. Despite credit challenges, this guide illuminates the pathway to obtaining non-status finance, highlighting its potential as a bridge over immediate financial gaps and a stepping stone towards future credit improvement. Armed with insights into the intricacies of non-status bridging loans, individuals and businesses are better equipped to navigate the landscape of short-term finance, making informed decisions that align with their financial objectives and circumstances.

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